Friday, May 6, 2011

Brazilian imports of US ethanol soar



Hard to fathom, given the comparative costs and energetics of ethanol from corn vs. sugarcane, but Brazil appears to have fallen onto a treadmill it can't control:

Brazilian imports of US ethanol soar

By Ed Crooks and Gregory Meyer in New York
Published: May 5 2011 22:47 | Last updated: May 5 2011 22:47
Financial Times

US exports of ethanol to Brazil have soared during the past year as the real's rise against the dollar and the high price of sugar have undermined the competitiveness of Brazil's domestically produced biofuel.

The share of the Brazilian market taken by US exports is still small but the steep rise in sales to the world's second-biggest producer reflects the US industry's growing commercial strength, which is also driving political pressure for the removal of state subsidies.

Brazilian ethanol made from sugarcane has been the cheapest biofuel for years. Yet Brazil imported 70m litres of US ethanol in 2010, up from just 1m in 2009, according to the US commerce department.

The boom in ethanol imports reflects disappointing Brazilian production and rising fuel consumption, from the cars and light trucks that run on Brazil's standard road fuel, a blend of ethanol and petrol, and the popular "flex-fuel" vehicles that run on petrol or pure ethanol.

Brazil's ethanol production in the 2010-11 season fell short of forecasts, rising only 3 per cent to 25.3bn litres, according to Czarnikow, the London-based sugar merchant. "Brazilian supply has been unable to match the rise in demand," it said.

Geraldine Kutas of the Brazilian Sugarcane Industry Association said unusual circumstances had forced Brazil to import ethanol. "We have had two bad harvests in the last two years – one because it rained too much and the other because it was too dry," she said.

The steep fall in the sugar price will improve the competitiveness of Brazilian ethanol.

However, the US has now established itself as the world's second-largest ethanol exporter, selling to the Middle East, Europe and Canada, with its products made competitive by the fall in value of the dollar.

The US corn ethanol industry, criticised by environmentalists for its carbon emissions and free-market economists for its reliance on subsidies, is approaching the point where producers believe they can compete without state support.

In Congress this week, senators Chuck Grassley and Kent Conrad proposed legislation to pare back almost to nothing the tax breaks available for ethanol.

Chuck Woodside, chairman of the Renewable Fuels Association and general manager of Nebraska-based KAAPA Ethanol, said: "As we sit here, ethanol produced in Minden, Nebraska, is the cheapest motor fuel out there."

The proposed law calls for a three-year transition period for cutting the blenders' tax credit, so that in 2014 it becomes payable on a sliding scale linked to the price of oil. If crude is above $90 per barrel – which it is at the moment, and seems likely to be on average in the long term – then no credit would be paid.

Ethanol industry associations support this bill, seeing it as a way to preserve a safety net in case of a plunge in the oil price and to head off calls in Congress for an outright abolition of the credit.

Chuck Woodside, chairman of the Renewable Fuels Association, said: "We appreciate the budgetary constraints in Washington: this is a completely different environment from two or three years ago. There is already a huge financial incentive to blend ethanol."

However, the legislation as presented would retain a 15 cent per gallon tariff on ethanol imports until 2016, a measure that was opposed in Brazil. Ms Kutas said: "Free trade is a two-way street and we expect the US to eliminate the tariff. Now the US is not only the main producer of ethanol but also the main exporter."

Additional reporting by Joe Leahy in São Paulo

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Biofuels are a wide range of fuels which are in some way derived from biomass.

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